please show work for good rating.....Bouchard Company\'s stock sells for $20 per
ID: 2689581 • Letter: P
Question
please show work for good rating.....Bouchard Company's stock sells for $20 per share, its last dividend (D0) was $1.00, its growth rate is a constant 6 percent, and the company would incur a flotation cost of 20 percent if it sold new common stock. Retained earnings for the coming year are expected to be $1,000,000, and the common equity ratio is 60 percent. If Bouchard has a capital budget of $2,000,000, what component cost of common equity will be built into the WACC for the last dollar of capital the company raises? a. 11.30% b. 11.45% c. 11.80% d. 12.15% e. 12.63%Explanation / Answer
Cost of equity = D1/Po + g = (1*(1+0.06))/ (20*(1-0.20)) + 0.06
Cost of equity = 12.63%
e. 12.63%......................(answer)
just a suggestion, do not give out options for mutiple choice question. Many people love take random guesses for karma point.
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